KUALA LUMPUR: Berjaya Sports Toto’s (BToto) earnings in the first half ended Oct 31, 2015 were below expectations and came it at 40% of CIMB Equities Research’s full-year forecast.
However, the research house expects a stronger 2H16, given year-end festivities and Chinese New Year but it maintained its Hold rating.
“We prefer Genting Malaysia for exposure to the gaming sector, given the more resilient earnings profile of casinos and visible event re-rating catalyst in the form of the Genting Integrated Tourism Plan rollout,” it said.
CIMB Research said the Good and Services Tax (GST) and higher prize payout hit 1H16 net profit.
Sports Toto Malaysia’s revenue rose 1.3% on-year in 1H16 due to the higher number of draws. However, 1H16 pretax profit fell 24.6% on-year due to the higher prize payout and GST being absorbed by Sports Toto.
The Philippines operations however, registered an increase in pretax profit of 10% on-year in 1H16 due to the stronger peso.
HR Owen’s revenue rose 28% on-year in 1H16, while pretax profit rose 133% due to the opening of new outlets, as well as forex translation gains arising from the stronger British pound.
“We lower FY16 EPS by 6% for our higher prize payout assumption (up 1% pt) and slightly higher finance cost. As a result, our FY16 DPS estimate falls from 21.5 sen to 20.5 sen.
"FY17-18 EPS has also been tweaked lower. Our DDM-based target price is lowered slightly from RM3.15 to RM3.12,” it said.
CIMB Research said it appears that negative consumer sentiment has caused a strong shift in punting behaviour in favour of the illegal operators. Given that the number forecast operators (NFOs) have to bear the cost of the GST to maintain their competitiveness, the pressure on their topline and bottomline is gradually building up.
“In our Navigator 2016 gaming sector outlook, we expressed our concern about possible downside risk to NFO dividends, given the continued negative effects of market share loss to the illegal operators and poor consumer sentiment.
“Both Magnum and BToto reported recent quarterly dividends that were below expectations. In spite of our EPS and DPS cuts, BToto continues to offer dividend-minded investors decent dividend yields of 7%,” it said.